Cisco 2002 Annual Report Download - page 42

Notes to Consolidated Financial Statements
40 Cisco Systems, Inc. 2002 Annual Report
Purchase Commitments with Contract Manufacturers and Suppliers
The Company uses several contract manufacturers and suppliers to provide manufacturing services for its products. During
the normal course of business, in order to reduce manufacturing lead times and ensure adequate component supply, the Company
enters into agreements with certain contract manufacturers and suppliers that allow them to procure inventory based upon
criteria as defined by the Company. As of July 27, 2002, the Company has purchase commitments for inventory of approximately
$800 million.
Other Commitments
In fiscal 2001, the Company entered into an agreement to invest approximately $1.0 billion in venture funds managed by SOFTBANK
Corp. and its affiliates (“SOFTBANK”). These venture funds are required to be funded upon demand by SOFTBANK. As of
July 27, 2002, the Company has funded $100 million of this investment commitment.
The Company provides structured financing to certain qualified customers to be used for the purchase of equipment and
other needs through its wholly-owned subsidiary, Cisco Systems Capital Corporation. At July 27, 2002, the outstanding loan
commitments were approximately $948 million, subject to the customer achieving certain financial covenants, of which approximately
$209 million was eligible for draw down. These loan commitments may be funded over a two- to three-year period provided
that these customers achieve specific business milestones and financial covenants.
The Company has entered into several agreements to purchase or construct real estate, subject to the satisfaction of certain
conditions. As of July 27, 2002, the total amount of commitments, if certain conditions are met, was approximately $491 million.
At July 27, 2002, the Company has a commitment of approximately $190 million to purchase the remaining portion of the
minority interest of Cisco Systems, K.K. (Japan).
The Company also has certain other funding commitments of approximately $152 million at July 27, 2002 related to its privately
held investments.
9. Shareholders’ Equity
Stock Repurchase Program
In September 2001, the Board of Directors authorized a stock repurchase program to acquire outstanding common stock in the
open market or negotiated transactions. Under the program, up to $3 billion of Cisco common stock could be reacquired over
two years. In August 2002, the Board of Directors increased Cisco’s stock repurchase program by $5 billion to a total of $8 billion
of Cisco common stock available for repurchase through September 12, 2003.
During fiscal 2002, the Company repurchased and retired approximately 124 million shares of Cisco common stock for an
aggregate purchase price of approximately $1.9 billion. Including the amount approved by the Board of Directors in August 2002
as discussed above, the remaining authorized amount for stock repurchase is $6.1 billion.
Shareholders’ Rights Plan
In June 1998, the Board of Directors approved a Shareholders’ Rights Plan (“Rights Plan”). The Rights Plan is intended to
protect shareholders’ rights in the event of an unsolicited takeover attempt. It is not intended to prevent a takeover of the Company
on terms that are favorable and fair to all shareholders and will not interfere with a merger approved by the Board of Directors.
Each right entitles shareholders to buy a unit equal to a portion of a new share of Series A Preferred Stock of the Company. The
rights will be exercisable only if a person or a group acquires or announces a tender or exchange offer to acquire 15% or more
of the Company’s common stock.
In the event the rights become exercisable, the Rights Plan allows for Cisco shareholders to acquire, at an exercise price
of $108 per right owned, stock of the surviving corporation having a market value of $217, whether or not Cisco is the
surviving corporation. The rights, which expire in June 2008, are redeemable for $0.00017 per right at the approval of the
Board of Directors.
Preferred Stock
Under the terms of the Company’s Articles of Incorporation, the Board of Directors may determine the rights, preferences, and
terms of the Company’s authorized but unissued shares of preferred stock.